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Your “Identity” as a Trader“A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.” – Ed Seykota A trader friend of mine brought up the topic of “ identity ” recently. Firstly, a warning. This article is not for everyone . Quite possibly a lot of resistance is going to come up to the ideas in here from some people. All I will say is pay close attention to that resistance, because it could well be what is holding you back. The market is essentially an unlimited environment. There are no rules that guide your behaviour. You are free to choose when, where and how much you trade. Mark Douglas, in his book Trading in the Zone, suggests that it is this desire for freedom that attracts so many traders to the market. There are no parents telling us what to do, or corporate floozies who have the “pay-check given” right to make us jump yea-high. But the challenge with the lack of guidelines and structure is that most of us don’t come to the market with the right beliefs to win. When you first approach the markets you are a butcher, baker or corporate candlestick maker. Not a trader. So your belief structures about “how to be successful” come from a field unrelated to trading. And many of the skills for successful trading are counter-intuitive to other fields. So, as soon as you start trading, it is critical that you adopt the identity of a trader. This can be done with some specificity. I say “I am a macro currency trader”, because having this identity keeps me true to my purpose. For others it might be “I am a mechanical trend follower” or “I am a Forex and commodities trader”. But saying this is not enough. You need to adopt the beliefs of your new identity… and not just any beliefs, but those of a top performer in your new identity. (By the way, this is why the first two lessons of the Advanced Forex traders are on: 1. Recognizing your beliefs 2. Immediately choosing to adopt the beliefs of top traders.) Small traders have small trading problems Adopting a new identity and belief structure requires thinking differently. Essentially, you want your thoughts to be modeled on a very successful trader (as opposed to someone who is very successful in the field of business or teaching etc.). One of the challenges is that unsuccessful or new traders tend to think like new or unsuccessful traders. They are pre-occupied with thoughts and beliefs that top traders don’t have. Worried about losing $100? Can’t do your position sizing with micro-lots? Don’t have a winning strategy? Wondering if you should sell on this bad news? These are not things that top traders concern themselves with. You have got to push yourself to think BIG even if you are small. Instead of worrying about whatever you are right now, think; what would you need to do/know/have if you were managing a 100-million-dollar account? What are the questions you would ask yourself and how would you act? What support systems, people and resources do I need? How do I improve my perception of what is going on? How do I manage risk? What decision making tools do I require? How can I make myself as relaxed and happy as I can be? How can you diversify your income streams? How do you crash test your trading system so you are prepared if the market does X, Y or Z? What position size should your trade be, based on your conviction in the trade and your risk management plan? What is you objective; and What will you do if you are wrong? As the saying goes. Fake it until you make it. Truly put yourself in the shoes of a top trader and purge all other beliefs and thoughts. Who dares wins The SAS* motto is “ who dares wins ”. Have the courage to think big and act big. Take the plunge and let go of your small time concerns. Good Luck!
Education
by Sam_Eder
Are You Cutting Your Winners Short by Trying to be Right?Good trading is a curious mix between taking profits when the market makes them available, and letting profits run to capture big wins. The problem is that, more often than not, this decision is dictated by emotion rather than reason. Instead of trusting the statistics behind our edge, we focus on trying to be right on our current position. Trading is a statistical game Top traders know their probabilities. They recognise that no matter the quality of their analysis, once they have entered their position, it may or may not go for them. If they start to second-guess which ones will go and which won’t, then chances are they will cut themselves out of some winners and degrade their system in the process. Understand the move you are looking to capture One of the first things to do when developing a system is to get very clear on the moves you are looking to capture. Once you have identified the types of opportunities you are looking for, you can create a “rule-based” plan to capture those moves with the best risk/reward possible. You should garner an understanding of how often the moves occur, how long they typically last, and how big the pullbacks can get. How the need to be “right” manifests itself when exiting There are three main ways that trying to be right interferes with our exits. This can happen both in the system development phase, and when trading live. We take profit without a clear exit signal. Be cautious not to take profit just because the market has gone your way. Wait for your pre-determined exit signals, or wait for your objective to be hit. We trail our stop-loss too tightly. Currency moves can require wide stops, so give the trade room to breathe. It’s no fun being whipsawed out of a trend because of your fear that it might end. Wait for the trade to be well in your favour before trailing your stop. Moving the stop to breakeven. A breakeven stop can be a good thing. However, if you find you are getting stopped out of winning trades because you have quickly moved your stop to breakeven, then perhaps it is not serving the best purpose. I’m sure there are several other ways this bias appears in our trading, so remain self-aware. Journal your interference Perhaps you are a guru with the skill to know exactly when to get out of your positions. How to tell? Make sure you mark in your journal any discretionary exit decisions you make. That way, you can track how well they compare to a “rules-based” approach. Alternatively, you can allow yourself a small percentage of the position to add and remove at will. By increasing our options this way, we feel good about being right, while still letting our profits run on the majority of the trade. Good Luck!
COMEX:HG1!Education
by Sam_Eder
How to Follow the Market's RhythmMost traders overtrade, for one reason or another. Overtrading is perhaps one of the quickest ways to decimate your account and especially as a retail trader with limited risk capital, the best thing is to only trade when the market is active and offering A+ trades. Efficiency is possible by working smarter, not harder. The question becomes: how can you identify those instances when it's worth pulling up a chair? When will the market be ripe for participation and when is it better to sit on your hands? The Market's Rhythm Some weeks the market is very active, and some weeks (like this week in particular) the market is simply chopping around. There is a rhythm to the market, which is important to understand. All traders probably know by now the usual behavioural traits of the three main money centers in Foreign Exchange: London is usually the trend-setter; New York is the deepest liquidity pool and frequently challenges the London move; Asia is usually the consolidation session. But sometimes the market is awake and sometimes it seems like it's sleeping. How can you logically forecast when to sit in front of your screens and when to something else with your time? Let's take this week as an example. This week we've had 3 relatively big pieces of data thus far: UK employment data UK CPI US CPI You would think that the markets would be pushed around by such items (which usually generate viable NewsFlow Trades) but instead all has gone silent this week. The markets are evidently waiting for something. Bill Lipschutz, founder of Hathersage Capital and Market Wizard, put it this way: "What is important is to assess what the market is focusing on at the given moment". By paying attention to any bank sheet or market wrap, it becomes immediately evident what the drivers are for the day or week ahead. This goes one step further than just watching an economic calendar because amongst all the pieces of data, you know which ones will be the main focal points. In particular, this week the FOMC rates decision and the ECB rates decision take center stage. The markets frequently remain rangebound ahead of such influential decisions and for good reason: if something unexpected comes out of either meeting, it could potentially force a decisive shuffling of positions - meaning large moves. This would make any pre-event risk taking fruitless. Mindful Inactivity The key to remaining in touch with the market's rhythm resides in a few important practices: check your macro calendar at the beginning of each day (as a reminder); read up on a few bank sheets over the weekend in order to get a feeling for what will be in focus during the week ahead; read session wraps in order to stay in touch with the day-to-day happenings (ForexLive produces free market wraps for example); take into consideration bank holidays, regular holiday times (August/December). Mindful inactivity means that you’re acting like an eagle and not like a pigeon. Eagles do not waste energy. They wait for thermal columns and glide seamlessly upwards, carried by the hot rising wind. Thermals appear during morning or early afternoon hours after the sun rises and warms the earth. When a surface grows hot enough, a thermal column rises into the atmosphere. So that's when it's more likely to see eagles flying. They don't appear out of thin air...you know that they are creatures of habit and are attracted by a certain dynamic. Mindful traders are tuned into the rhythm of the market and listen, read and prepare. If a trend is starting on the back of a meaningful story/development/news item, a significant price change may follow. Hence, waiting for the market to be inspired by something enhances the risk-reward ratio of your trades, and can also positively impact your win rate. Good Luck!
Education
by Sam_Eder
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